Feb. 19 (Bloomberg) -- Warren Buffett, speaking last April
at Coca-Cola Co.’s annual meeting, warned that the beverage
giant shouldn’t get complacent about its success. Ten months
later, those words could come back to haunt the company.

The world’s largest soft-drink maker, facing sluggish
growth overseas and concerns about the healthiness of its
product at home, posted its fourth straight quarter of declining
sales yesterday. The results sent the stock on its biggest one-day decline in more than two years -- bad news for both Coke and
Buffett, the company’s largest shareholder.

The slowdown has raised concerns about the long-term plan
of Chief Executive Officer Muhtar Kent, who has promised big
revenue gains by 2020. Investors are looking for Kent to take
bolder steps, said Ali Dibadj, an analyst at Sanford C.
Bernstein & Co. While the company announced a $1 billion budget-tightening plan yesterday, it doesn’t go far enough, he said.

“There needs to be much more cost cutting,” Dibadj, who
is based in New York, said in an interview. “There needs to be
much faster innovation. There needs to be much more return of
cash to shareholders.”

Coke’s fourth-quarter sales fell 3.6 percent to $11
billion, missing the average analyst estimate compiled by
Bloomberg. Net income slid 8.4 percent to $1.71 billion, or 38
cents a share, from $1.87 billion, or 41 cents, a year earlier.

Kent, 61, responded to the slump by pledging to cut $1
billion in annual costs by 2016. With soft-drink sales slowing
in markets such as the U.S. and Mexico, savings from the new
cost-cutting program will be plowed into marketing its brands
directly to consumers, Coca-Cola said.

Stock Decline

Shareholders weren’t encouraged. Coca-Cola’s stock declined
1 percent to $37.10 at the close in New York after it fell 3.8
percent yesterday, marking the biggest one-day drop since August
2011. The shares have slid 10 percent this year, compared with a
1.1 percent decrease for the Standard & Poor’s 500 Index.
Purchase, New York-based PepsiCo Inc., the company’s biggest
competitor, fell 7 percent in that period.

Buffett, 83, has advised Kent to stay ahead of competitors
by anticipating problems that could crimp growth. At Atlanta-based Coke’s annual meeting last year, the executives shared the
stage to help sell the company’s message to shareholders.

“I like to study failure,” the billionaire investor, who
accumulated the stock through to the end of 1994, said at the
time. “We want to see what has caused businesses to go bad, and
the biggest thing that kills them is complacency. You want a
restlessness -- a feeling that somebody’s always after you, but
you’re going to stay ahead.”

Buffett, the CEO of Omaha, Nebraska-based Berkshire
Hathaway Inc., didn’t immediately return a message left with an
assistant seeking comment.

New Competitors

Coca-Cola and PepsiCo are facing an array of upstart
competitors fighting for shelf space. That includes a host of
energy drink brands, pressed juice makers and do-it-yourself
appliances from companies like SodaStream International Ltd.,
based in Lod, Israel.

Coca-Cola has taken steps toward diversifying. Earlier this
month, it agreed to buy a 10 percent stake in Waterbury,
Vermont-based Green Mountain Coffee Roasters Inc. for about
$1.25 billion and work with the maker of Keurig coffee brewers
to introduce a system for producing single-serve cold drinks.

The move fits into Coca-Cola’s strategy of taking equity
stakes in promising new brands and technologies, such as Zico
coconut water and Honest Tea, and helping incubate them. Coca-Cola eventually acquired all of Zico and Honest.

Kent, who likes to say he is “constructively discontent,”
also shook up his management team in December, aiming to improve
the company’s North American distribution system. As part of the
move, the company said that Steve Cahillane, president of Coca-Cola Americas, would leave and his unit would be dissolved.

Global Reach

Kent often touts Coca-Cola’s ability to offset troubles in
one area of the world with gains in another -- the benefit of
operating in more than 200 countries. That advantage may be
disappearing as increasing numbers of consumers shun soft drinks
for health reasons, currency fluctuations erode sales, and
scores of new competitors begin loading their sling shots.

In developed countries, including the U.S., anti-obesity
campaigns have made it more challenging to sell sugary drinks.
Concerns about the health of artificial sweeteners, meanwhile,
have hurt sales volume for one of the company’s biggest zero-calorie soft drinks, Diet Coke. About three-quarters of the
company’s volume comes from soft drinks, including energy
drinks, with orange juice, water and other beverages accounting
for the rest.

Coca-Cola Life

In the U.S., Coke began airing television ads early last
year on programs such as “American Idol” to bring attention to
the importance of exercise and calories. The commercials sought
to counter criticism that Coke’s drinks contribute to the
country’s weight problem. Almost 36 percent of adults and about
17 percent of children are obese, according to the Centers for
Disease Control and Prevention in Atlanta.

Coca-Cola Life, a cola flavored with both sugar and the
natural no-calorie sweetener stevia, was introduced last year in
Argentina. It has shown promising results, Kent said yesterday
during a conference call with reporters.

Adding to Coke’s challenges: a slump in emerging markets
such as China, India and parts of Latin America. Worldwide
volume sales of soft drinks branded with the Coca-Cola
trademark, including Diet Coke and Coke Zero, grew just 1
percent last year. That compares with a 3 percent gain in 2012.

“The growth rates in emerging markets are slowing down,”
said Jack Russo, a St. Louis-based analyst at Edward Jones & Co.
who recommends buying Coca-Cola’s stock. That’s not just a
problem for Coke, he said. “Almost every company in the
universe is telling us that.”

Stock Buybacks

To keep investors happy, Coca-Cola should return more cash
to shareholders by way of share repurchases and higher
dividends, Russo said. More aggressive cost cutting also could
help, he said.

Coke’s management will ask directors this week to raise the
dividend for 2014, Chief Financial Officer Gary Fayard said
yesterday during a conference call. He expects the company to
repurchase between $2.5 billion and $3 billion of its stock this
year, less than the $3.5 billion worth bought back in 2013.

“Coke is not going to be able to grow as quickly as it did
in the past with these issues looming,” Russo said. “They need
to continue to battle it out.”